Resolving Public Subsidies of Wal-Mart Health Care Costs

by Jerome F. Winzig
Northern City Journal
23 August 2004 Issue


Copyright © 2004 Jerome F. Winzig.  All rights reserved.
Web site: http://www.NorthernCityJournal.com


Earlier this month there was much coverage of a report by Arindrajit Dube of the University of California at Berkeley's Institute for Industrial Relations and Ken Jacobs of the University's Center for Labor Research and Education.  According to their study, Wal-Mart employees have less health care coverage and receive more in public assistance than employees of other retailers.  The study, which was disputed by Wal-Mart (in part because it was not consulted for the study), examined several aspects of Wal-Mart's employee compensation.  But much of the news coverage claimed the public was subsidizing health care costs for Wal-Mart employees.

There may be reasons to question Wal-Mart's pay levels and its reliance on part-time employees.  However, the tendency by some in the news the media to blame Wal-Mart for health care costs served only to reinforce the common misperception that employers are responsible for rising health care costs.

It's true that rising costs lie at the heart of what most agree is a crisis in health care.  The cause of that problem, however, is the very fact that most health care costs are paid by third parties.  These include government, insurance companies, health maintenance organizations, and employers that self-insure their employees health care costs.  In fact, patients nationwide pay only one-sixth of their own health care costs.

This practice is so pervasive that we take it for granted as a natural part of the health care system.  However, John F. Cogan, R. Glenn Hubbard, and Daniel P. Kessler offer a different perspective in an essay that was published in the May 4, 2004 issue of the Wall Street Journal and reprinted by the Hoover Digest.  They say, "[T]here's nothing natural about it.  Food and shelter are even more basic to our well-being, but we don't use insurance to buy bread or repair broken windows."

Using third parties to pay for health care costs results in rising costs and wasteful medical practices.  Not too long ago, I accompanied a family member with a serious infection to urgent care and overheard a nearby patient's cell phone conversation.  Sounding neither ailing nor congested, he told his friend, "Yeah, I've had this cold for a couple of days and came in to get some antibiotics."  His conversation demonstrated the truth of Milton Friedman statement, "Nobody spends somebody else's money as wisely as he spends his own."  I wonder if the young man's doctor told him the truth ( that antibiotics don't kill viruses) or appeased him by writing a prescription.

This problem exists because we exempt employer-provided health care from taxation.  This policy, first implemented over 60 years ago as a temporary end-run around the World War II wage freeze, has become the elephant in the room that almost no one mentions.

There is, however, a simple solution that would address our rising health care costs and the increasing number of those who are uninsured.  Cogan, Hubbard, and Kessler suggest this proposal: "All individually purchased insurance and out-of-pocket expenses would become tax deductible for persons who have at least catastrophic insurance coverage.  The tax deduction could be taken by persons who claim the standard deduction on their tax returns and those who itemize deductions.  All purchases of health care would receive the same income tax treatment."

Augmenting the Cogan-Hubbard-Kessler solution slightly, we might even provide for an income tax credit for low-income, chronically ill people who have predictable large medical bills and no way to pay them.  This would address these costs head-on, instead of shoving them onto the budgets of the nation's public hospitals.

This simple but elegant solution would address three key problems.  First, it would have immediate benefits; those who are currently uninsured could go to the doctor, pay the bill themselves, and deduct all of it on their income taxes.  Second, it would start to separate health care coverage from employment and move us in the direction of portable, nationwide health insurance with a level playing field for everyone.  (Legislation to let individuals and small employers band together to purchase health insurance would help level the playing field even more.)  Third, it would make all of us more cost-conscious and more willing to take greater control of health care decisions.

This solution would address the problem of rising costs without significant adverse health consequences.  Not incidentally, it would also begin to put the choice of a doctor back in the hands of individual patients.  Most importantly, it would put consumers in charge and let market forces work to reduce costs.


Jerome F. Winzig is a freelance technical writer in Minneapolis, Minnesota.  He wrote this article for the Northern City Journal.


Northern City Journal	08/23/04

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